MCLEAN, Va., May 12 /PRNewswire-FirstCall/ -- JER Investors Trust Inc.(NYSE: JRT) today reported results for the quarter ended March 31, 2008:
First Quarter Highlights:
-- Liquidity: At March 31, 2008, we had $12.7 million in unrestricted cash plus an additional $1.1 million of restricted cash. As of May 8, 2008, unrestricted cash increased $20.1 million to $32.8 million primarily as a result of proceeds from the sale of the remaining 50% interest in the Charter School joint venture, proceeds from real estate loan repayments and net operating cash flow aggregating $5.8 million, offset, in part, by margin calls of $17.4 million, and payment of our first quarter 2008 dividend of $7.7 million.
-- Credit Performance: As of March 31, 2008, delinquency rates on collateral for our CMBS portfolio in which we own the first-loss position remain at low levels with a 60 day delinquency rate of approximately 32 basis points compared to 27 basis points at December 31, 2007. Overall, CMBS portfolio cash flow projections generally continue to be in line with original underwriting. There were no delinquencies, impairment charges or loss reserves established related to real estate loans and assets as of and during the three months ended March 31, 2008.
-- Adjusted Funds from Operations: Generated Adjusted Funds from Operations ('AFFO') of $10.6 million, or $0.41 per diluted common share for the three months ended March 31, 2008. AFFO excludes the impact on GAAP operating results of depreciation of real estate assets, non-cash other than temporary impairment charges on CMBS investments, unrealized gains and losses on our CDO related financial assets and liabilities for which we have elected the fair value option pursuant to adopting SFAS No. 159 effective January 1, 2008, unrealized losses on real estate loans held for sale, and unrealized losses related to hedge ineffectiveness. At the end of this earnings release is a reconciliation of GAAP net income (loss) to AFFO.
-- GAAP Operating Results: Incurred a net loss of $66.8 million, or $(2.60) per diluted common share, primarily driven by unrealized losses on CDO related financial assets of $179.7 million, non-cash other than temporary impairment charges on CMBS investments not financed by CDO's of $99.6 million, unrealized losses on non-CDO interest rate swap agreements of $15.6 million related to discontinuation of hedge accounting on our non-CDO related interest rate swaps, and unrealized losses on loans held for sale of $28.4 million, which were offset, in part, by unrealized gains, net, on CDO related financial liabilities of $246.6 million and AFFO of $10.6 million during the three months ended March 31, 2008. The non-cash impairment charge on our CMBS not financed by CDO's includes a $2.1 million charge related to declines in the projected net present value of future cash flows on certain of CMBS investments pursuant to EITF 99-20. The remaining non-cash CMBS impairment charge of $97.5 million relates to other than temporary declines in fair value which is due to widening credit spreads for CMBS investments which began in the first half of 2007 and continued through the first quarter of 2008.
-- Stockholders' Equity: Stockholders' equity at March 31, 2008 is $256.0 million ($9.88 per share) compared to $10.8 million ($0.42 per share) at December 31, 2007. The increase is primarily due to the adoption of SFAS No. 159, effective January 1, 2008, where we elected the fair value option for all financial assets and liabilities related to our CDO's. The impact of adopting SFAS No. 159 increased stockholders' equity by $246.1 million to $256.9 million or $9.92 per share as of January 1, 2008. Additionally, if all assets and liabilities were carried at fair value at March 31, 2008, we estimate that stockholders' equity would increase to approximately $285.3 million or $11.02 per share. At the end of this earnings release is a proforma calculation of the March 31, 2008 Fair Value Balance Sheet and Stockholders' Equity.
-- Subsequent Events: * In April 2008, we sold our remaining 50% interest in the Joint Venture which owns twelve net leased real estate assets which resulted in net cash proceeds of approximately $39.4 million. * During April 2008, we paid down our repurchase agreement facilities by approximately $17.4 million. * In April 2008, we received a final payment of $3.2 million on one of our mezzanine real estate loans. * In April 2008, we declared a first quarter 2008 regular cash dividend of $0.30 per share of common stock and on May 6, 2008, we paid dividends of $7.7 million.
Operating Results
The net loss was $66.8 million, or $(2.60) per diluted common share, forthe three months ended March 31, 2008, compared to net income of $9.8 million,or $0.38 per diluted common share, for the three months ended March 31, 2007.AFFO was $10.6 million, or $0.41 per diluted share, for the three months endedMarch 31, 2008, compared to $10.0 million, or $0.39 per diluted share, for thethree months ended March 31, 2007. At the end of this earnings release is areconciliation of GAAP net income (loss) to AFFO for the three months endedMarch 31, 2008 and 2007.
Total revenues were $31.8 million for the three months ended March 31,2008 compared to $29.9 million for the three months ended March 31, 2007,respectively. The increase in revenues is due to increased balances ofinterest-bearing assets due primarily to acquisitions of CMBS and real estateloans, offset, in part, by lower cash balances, on average, as well as theimpact of lower LIBOR levels.
Interest expense for the three months ended March 31, 2008 was $15.4million compared to $15.6 million for the three months ended March 31, 2007.Due to the adoption of SFAS No. 159, effective January 1, 2008, as well asdiscontinuation of hedge accounting on our non-CDO interest rate swaps,interest expense in the three months ended March 31, 2008 does not include theimpact of interest rate swaps. During the three months ended March 31, 2007,interest expense includes $0.4 million related to interest rate swaps. Afteradjusting for these classification differences, the $0.2 million increase ininterest expense for the three months ended March 31, 2008 compared to thesame period in 2007 is primarily related to increased average balancesoutstanding on repurchase agreements in the three months ended March 31, 2008and our April 2007 issuance of trust preferred securities, offset in part, bylower LIBOR rates in 2008 compared to 2007.
Total management fees were $1.8 million for the three months ended March31, 2008 compared to $2.0 million three months ended March 31, 2007. Basemanagement fees were $1.8 million for each of the three months ended March 31,2008 and 2007. We incurred incentive management fees of $0 and $0.2 millionduring the three months ended March 31, 2008 and 2007.
General and administrative expenses were $2.0 million for the three monthsended March 31, 2008 compared to $2.3 million for the same period in 2007.The decrease in general and administrative expenses is primarily due todecreased due diligence expense related to lower acquisition volume.
During the three months ended March 31, 2008, other losses, net of $79.4million were recorded and consist of the following (in millions):
Composition of Other Gains (Losses)
Three Changes in Recognition of Cash Other Months Fair Value Amounts in Payments on Ended for Three Accumulated Interest Rate March 31, Months ended Other Swaps 2008 March 31, Comprehensive 2008 Income (Loss) as of December 31, 2007
Other Gains (Losses) for the Three Months Ended March 31, 2008 Unrealized gain (loss) on CDO related financial assets CMBS $(174.8) $(174.8) $- $- $- Real estate loans held for investment (4.9) (4.9) - - - Unrealized gain (loss) on CDO related financial liabilities - - - - - Notes payable 266.7 266.7 - - - Interest rate swaps (20.1) (20.1) - - - Loss on interest rate swaps (2.8) - (0.7) (2.1) - Loss on impairment of CMBS (99.6) (45.1) (54.5) - - Unrealized loss on real estate loans held for sale (28.4) (28.4) - - - Unrealized loss on non-CDO related interest rate swaps (15.6) (4.2) (10.8) - (0.6) Total other gains (losses) $(79.4) $(10.8) $(65.9) $(2.1) $(0.6)
We recorded unrealized gains, net, on our CDO related financial assets andliabilities of $66.9 million during the three months ended March 31, 2008 dueto changes in fair value resulting from widening of credit spreads on CMBS,real estate loans held for investment and CDO notes payable, and lower 10-yearswap rates with respect to our interest rate swaps.
Losses on interest rate swaps of $2.8 million consist primarily of netcash settlements on such swaps of $2.1 million during the three months endedMarch 31, 2008.
We recorded non-cash impairment charges of $99.6 million for the threemonths ended March 31, 2008 on our CMBS investments not financed by CDO's. Thenon-cash impairment charge includes a $2.1 million charge related to declinesin the projected net present value of future cash flows on certain of the CMBSinvestments pursuant to EITF 99-20. The remaining non-cash CMBS impairmentcharge of $97.5 million relates to other than temporary declines in fair valuedue to widening credit spreads for CMBS investments which began in the firsthalf of 2007, accelerated throughout the second half of 2007 and continuedthrough the first quarter of 2008 resulting in both increased severity of thelevel of unrealized losses as well as increased duration of such unrealizedlosses. For the three months ended March 31, 2007, we recorded no non-cashimpairment charges on our CMBS investments.
Unrealized losses of $28.4 million were recorded on our real estate loansheld for sale during the three months ended March 31, 2008. The losses wereprimarily due to spread widening on such loans. We carry these loans at thelower of cost or estimated fair value, on an individual loan basis. Theseloans had a face amount of $233.8 million with an unamortized cost basis of$231.4 million, an estimated fair value of $189.2 million and outstandingborrowings against such loans of $142.8 million as of March 31, 2008.
Unrealized losses on non-CDO related interest rate swaps of $15.6 millionwere recorded during the three months ended March 31, 2008 as a result ofdiscontinuing hedge accounting for these swaps. This charge relates tointerest rate swaps that were designated to hedge existing floating rateindebtedness related to our repurchase agreements and anticipated future long-term floating rate indebtedness. We recorded this charge as a result ofuncertainty related to our ability to obtain future long-term financingassociated with such swaps due to continued market disruptions as well as thepotential for sales of certain of our real estate loans held for sale whichwould ideally be financed by such borrowings. No unrealized losses on interestrate swaps were recorded during the three months ended March 31, 2007.
Investment Activity
During the three months ended March 31, 2008, we received principalrepayments of $4.1 million related to two real estate loan investments and wemade net capital contributions to the US Debt Fund of $0.4 million.
Since raising our initial equity capital in June 2004 through March 31,2008, we have closed 55 investments, comprised of CMBS, real estate loans,real estate assets and investments in the US Debt Fund totaling approximately$2.0 billion. In addition, through March 31, 2008 the Company has sold assetsor received principal payments on investments aggregating approximately $435.2million.
The Company's investments as of March 31, 2008 consist of:
March 31, 2008 Weighted Average Face Amount/ Amortized % of Total Coupon GAAP Cost Basis (1) Cost (2) Investments Rate Yield
($ in millions) (based on amortized cost)
CMBS financed by CDO's $1,309.1 $388.1 37.2% 5.1% 20.0%(3) CMBS not financed by CDO's 453.1 109.0 10.4% 5.2% 20.3%(3) Real estate loans, held for investment 275.0 274.8 26.3% 5.7% 5.7% Real estate loans, held for sale 233.8 231.4 22.2% 6.8% 6.9% Investments in unconsolidated joint ventures: Real estate assets (4) 39.4 39.4 3.8% 10.0% 14.2% US Debt Fund 1.4 1.4 0.1% N/A N/A Total $2,311.8 $1,044.3 100.0% 5.3% 11.0%
(1) For investments in unconsolidated joint ventures, amount in column represents cost basis. (2) Amortized cost for CMBS equates to fair value as a result of resetting the cost basis and yields as of March 31, 2008 as further discussed below. (3) GAAP yields represent loss adjusted yields for our CMBS investments and reflects the impact of estimated future losses on underlying collateral and are the basis on which we record interest income on such investments in our GAAP financial statements in accordance with guidance provided by EITF 99-20. (4) In April 2008, we sold our remaining 50% interest in the joint venture which owns net leased real estate assets and no longer have any investment in net leased real estate assets. Coupon rate equates to current lease yield.
Effective January 1, 2008, we elected to account for our CMBS investmentsand real estate loans held for investment financed by CDO's using the fairvalue option under SFAS No. 159. As a result, changes in the value of suchCMBS and real estate loans held for investment are recorded as a component ofunrealized gains (losses) on CDO related financial assets in our consolidatedstatement of operations. With respect to CMBS not financed by CDO's, weclassify these as available for sale. As such, absent impairment, changes inthe estimated market value of such CMBS investments are reflected as changesto accumulated other comprehensive income (loss) and affects stockholders'equity. As of March 31, 2008, no unrealized losses were reflected inaccumulated other comprehensive income (loss) with respect to these CMBSinvestments as we recognized the unrealized losses as of March 31, 2008related to these assets as a non-cash other than temporary impairment chargedue primarily to the duration and severity of the unrealized losses.
